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What Is Capital in Business, and How Does it Work?

Whether you’re a new startup or you’ve been in business for decades, your company needs capital to grow and thrive. And, having a solid understanding of capital and how it can benefit your company can help you regardless of what stage your business is in. So, what is capital?

Capital definition:

So, what does capital mean? Capital is anything that increases your ability to generate value. You can use capital to increase value in your business’s financial assets. Generally, business capital includes financial assets held by your company that you can use to leverage growth and build financial stability. 

Capital and cash are not one and the same. Capital can be stronger than cash because you can use it to produce something and generate revenue and income (e.g., investments). But because you can use capital to make money, it is considered an asset in your books (i.e., something that adds value to your business). 

So, how does capital work? Companies can use capital to invest in anything to create value for their business. The more value it creates, the better the return for the business. 

Capital examples

So, what does capital include? Capital can expand to a variety of things in business, both tangible and intangible. Here are a few examples of capital:

• Company cars
• Brand names
• Bank accounts

There are also different types of capital in business, including:

• Use this capital to pay for day-to-day business operations
• Converts into cash more quickly than other investments (e.g., a new oven at a bakery)
• Capital a business earns from taking out loans and debt
• Comes in several forms, including public equity and private equity (e.g., shares of stock in the company)
• Amount of money available to a company for purchasing and selling assets

Capital gains and losses

When you make an investment, the goal is to generate wealth for your business to help it grow and expand. And as your investments grow your business , the capital itself can increase in value, which can result in capital gains. 

Capital gains

When your capital’s worth increases, you see a capital gain. A capital gain occurs when your investment is worth more than its purchase price.

For example, say you buy a machine for $1,500. The machine needs work, but you fix it without needing any new parts. You then turn around and sell it for $2,000 because you gave it a higher value by fixing it. 

To calculate the gain in your business accounting records, take the final sale price of the machine ($2,000) and subtract the initial purchase price ($1,500). Your accounting records should reflect a gain of $500.

Capital losses

Not every investment is going to be worth it in the end. This is where capital losses come into play. With a capital loss, your investment is worth less than its initial purchase price. 

Let’s take a look at the machine example again. You purchase the machine for $1,500, but you spend $600 on new parts to fix the machine before you sell it for $2,000. Between the cost of the machine and its new parts, you spend $2,100. This is considered a capital loss of $100 because you spent more money on the total investment ($2,100) than you received for the sale ($2,000). In your books, record a capital loss of $100.

How to grow capital

So, how do you go about growing capital? There are a number of ways you can increase your capital, including:

• Apply for a small business loan
• Find an angel investor
• Ask friends and family for a loan 
• Use crowdfunding
• Look into SBA loans and programs 

Growing your capital can take time and a whole lot of dedication. To ensure you have a good shot at growing your capital, develop and refine your business plan . And, practice pitching why investors and lenders should invest in your business. 

Once you establish your company and get it off the ground, you can typically gain funding from other sources. You should gain capital primarily from your profits. And as you gain equipment, property, and other assets, your capital grows. When it grows, the financial worth of your business grows.

Capital in accounting

Business owners can use their capital records to make savvy investments and help make smart financial decisions. But in order to do that, your accounting records need to be as accurate as possible.

To easily track capital, make smart financial moves, and avoid major mistakes, record your investments in your books regularly. And, be sure to examine them to see what’s working and what isn’t. 

To easily track capital in your books, you can opt to use accounting software. That way, you can record your capital quickly and avoid making accounting mistakes yourself. Plus, you can access numerous reports and financial statements to help make investments and decisions. 

To determine if an investment was worth it, examine your books and ask yourself the following questions:

• Did the capital I invested in help grow my company? 
• Am I in a good place financially that I can invest more in my company? 
• Which investments were not worth it?

When your capital is growing, so is your business. So to keep your business prospering, build a solid strategy for tracking, using, and gaining investments.

Want to spare yourself the time and frustration involved in keeping track of your business capital and other transactions? Give Patriot’s online accounting a whirl to keep your books in order. Try it free for 30 days today!

This article has been updated from its original publication date of January 15, 2016.

This is not intended as legal advice; for more information, please click here.

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Understanding Capital in Business: A Comprehensive Guide

Table of Contents

To understand what capital is in business, delve into the introduction that defines capital, and explores its significance for the growth and sustainability of businesses. Learn the essential concepts and benefits associated with capital, and how it plays a vital role in driving business success.

Definition of capital in business

Capital in business stands for the funds of a company that are used to make money and meet its goals. It consists of both equity and debt investments. Capital is vital for businesses as it gives them the ability to purchase assets, pay for expenses, and fund potential growth.

Capital comes in multiple forms, such as money , equipment, buildings, stock, investments, and intellectual property. These assets contribute to a business’s total value and show its financial potential. Equity capital is ownership held by shareholders, and debt capital is borrowed funds that need to be paid back with interest.

Managing capital correctly is important for keeping business operations going and making a profit. By using resources properly, companies can improve their efficiency and increase shareholder value. Allocating capital the right way allows firms to invest in R&D, grow their market presence, or strengthen production.

Also, businesses often do capital restructuring to get an optimal balance of risk and return with their financial structure. This involves issuing fresh stocks or bonds, buying back existing securities, or switching debt into equity. By making wise financial choices about capital structure, firms strive to achieve success in the long term.

Understanding what capital in business means is necessary for entrepreneurs and managers. It’s the basis for effective financial planning and decision making at organizations. Therefore, recognizing different kinds of capital and utilizing them effectively can have a significant influence on a company’s success.

Pro Tip: Looking at capital needs regularly and allocating it smartly lets businesses adjust to changing markets while maximizing returns.

Importance of capital for business growth and sustainability

Capital is a must for any business’s growth and sustainability. Without enough, businesses battle to extend their functions and meet their daily activities. Its significance for business growth and sustainability can be seen through these key points:

• Capital lets businesses buy essential resources and equipment , which are necessary for their enlargement. This includes buying new tech, improving current structure, and getting raw materials.
• Having enough capital allows businesses to take chances in the market , such as broadening into new areas or launching new products and services. This can help them gain an advantage and up their share of the market.
• Capital is vital for attracting investors and lenders . When businesses have a strong financial position, they are more probable to get funds from exterior sources, which can further fuel their development.
• With sufficient capital, businesses can hire skilled workers and put money into training programs to enhance their staff. An educated and motivated team is crucial for driving creativity, increasing productivity, and giving great customer service.
• Capital provides a safeguard during times of economic instability or unexpected issues . It allows businesses to go through tough times by footing expenses like rent, wages, and utilities without dropping quality or customer satisfaction.
• Having abundant capital also increases a company’s capacity to negotiate decent terms with suppliers and partners . It gives them a leverage in price discussions and strengthens their overall position in the value chain.

Besides these points, it is worth noting that capital has a big part in gaining the trust of stakeholders such as customers, suppliers, and employees. When a business has access to plentiful financial resources, it indicates stability and dependability, making it attractive for collaborations and partnerships.

Pro Tip: While getting enough capital is essential for business growth and sustainability, it’s also important for entrepreneurs to handle it correctly. Regular financial reviews, budgeting, and effective cash flow management are key practices to make sure capital is used as best as possible.

Types of Capital

To understand Types of Capital in Business, delve into Financial Capital, Human Capital, and Physical Capital. Each sub-section offers unique solutions in the realm of business . Financial capital helps with funding and investment decisions, human capital concentrates on skills and knowledge of employees, while physical capital involves tangible assets like buildings and machinery.

Financial capital

Five types of financial capital exist, each with its own unique characteristics.

• Equity capital represents ownership in a company. It can be obtained through issuing shares or investments from shareholders; it also provides voting rights and a share in profits.
• Debt capital involves borrowing funds from external sources which must be repaid with interest.
• Working capital covers day-to-day operational expenses.
• Fixed capital consists of long-term assets like land and machinery.
• Intellectual capital is composed of intangible assets like patents and customer loyalty.

Apart from these types of financial capital, there could be others depending on the industry or context. Understanding these forms helps businesses make sound funding decisions. Investopedia suggests diversifying assets across different classes to mitigate risks in an investment portfolio.

Let’s continue exploring other types of capital to gain further insight into the realm of finance.

Definition and examples

Capital is the resources a person or company owns to create wealth or income. There are numerous sorts of capital, each with its own characteristics and examples. Let’s discover some of these!

Financial Capital: Money or financial assets that can be invested. Examples: cash, stocks, bonds, savings accounts, and real estate.

Human Capital: Skills, knowledge, and experiences of people. Examples: education, training, work experience, and expertise in a certain area.

Social Capital: Networks and relationships people have. Examples: professional associations, social connections, and influential contacts.

Natural Capital: Natural resources and ecosystems. Examples: land, forests, water bodies, and minerals.

Moreover, there’s cultural capital (such as art and culture) and intellectual capital (like patents and copyrights). These elements increase someone’s or company’s overall value.

Pro Tip: Knowing the different forms of capital helps businesses and individuals make smart decisions when allocating resources and looking for growth opportunities. By using diverse forms of capital, one can increase their competitive edge and achieve success.

Sources of financial capital

Financial capital is essential for any business. It is the money used to fund operations, investments, and other financial activities. Knowing where to get financial capital is key for businesses to make smart decisions about financing. Let’s look at some sources:

• Equity financing: Selling shares or ownership in a business. Investors get a stake in the company’s profits and assets.
• Debt financing: Borrowing from banks or financial institutions. This provides access to capital but adds debt.
• Retained earnings : Reinvesting profits instead of giving them to shareholders. This funds operations, expansion, and new projects.
• Leasing: Renting equipment or property instead of buying outright. This conserves cash flow.
• Grants and subsidies: Funds from government agencies or non-profits for research, energy, or disadvantaged communities.
• Trade credit: Negotiating with suppliers to get goods or services on credit. This manages cash flow.

Each source has its own advantages and considerations. The best option depends on the company’s goals, risk tolerance, and growth plans. Regularly monitoring capital structure and repayment schedules can maximize returns and manage risk. By making informed decisions about sources of financial capital, businesses can fuel growth and optimize their resources.

Human capital

Let us explore the multiple dimensions of human capital visually. Check out the table below:

These are only a few elements of human capital. Don’t forget the importance of diversity! It brings unique perspectives, encourages creativity, and helps with decision-making.

If you trace the roots of human capital, you’ll find that it began with education. Ancient philosophers and Islamic scholars all valued knowledge, which empowered individuals and benefited civilizations. Human capital has been important for centuries!

Capital is money or assets used by businesses to fund their operations and investments. There are four types: financial, human, physical, and social. Let’s take a look at the definitions and examples in the table below:

Financial capital is important for businesses to grow and can be raised through equity investments or debt financing. Human capital means the skills and knowledge of those in an organization. Training programs and educational opportunities can enhance this. Physical capital is tangible assets used in production and must be assessed and maintained. Social capital means networks and relationships with others. This enables access to resources like information or support.

To optimize these types of capital, businesses should:

• Diversify sources of financial capital.
• Invest in employee development.
• Assess and maintain physical capital.
• Nurture social capital.

By doing this, businesses can leverage their resources and stay competitive.

Importance of human capital for business success

The success of businesses depends on human capital . This means employees’ skills, knowledge, and experience. It’s essential for innovation, problem-solving, and decision-making .

Strong human capital brings diverse perspectives and knowledge. It helps companies evolve and stay ahead in competition. It also boosts customer satisfaction through excellent communication and interpersonal skills. This results in loyal customers, good reputation, and higher profits.

Investing in human capital development, like training and mentorship, leads to long-term benefits. Employees are more motivated, stay longer, and attract top talent.

Take Alex , a software developer at a multinational corporation. He had limited experience, but was trained and exposed to challenging projects. He rapidly improved his programming skills and innovated cost-saving solutions. He communicated complex concepts and secured partnerships, and was promoted multiple times.

Physical capital

Physical capital is essential for businesses to operate. It helps increase productivity, reduce costs, and improve overall performance. It has been used for thousands of years in human civilization. Examples include the invention of the wheel, the Great Wall of China, and the Pyramids of Egypt.

In modern times, physical capital still plays a vital role. It drives innovation and economic growth. Check out this table of physical capital:

Capital stands for the assets or funds of a person or company. Essential for the success and expansion of businesses, it is a huge part of the economy. There are many types of capital, each with its own characteristics and use. Let’s take a look!

It’s important for businesses and individuals to be aware of the various types of capital available and how to use them. By diversifying their capital, businesses can reduce risk and improve resilience. People should also work on growing their human capital by gaining new skills and knowledge to stay competitive in the job market.

Don’t miss out on the opportunities capital provides. Tap into the power of financial, physical, human, and social capital to reach your goals and succeed in today’s fast-changing world. Get started now and maximize your potential!

Role of physical capital in business operations

Physical capital is significant in business operations. It’s the tangible assets a company uses to make goods or services. Examples are buildings, machinery, equipment, and vehicles .

Let’s look at what physical capital is:

• Buildings: Give workspace and production facilities.
• Machinery: Used for manufacturing.
• Equipment: Tools and instruments.
• Vehicles: For transporting goods and employees.

Investing in physical capital helps businesses expand and stay competitive. Upgrading machinery or getting new technology can improve efficiency, cut costs, and enhance product quality. It’s essential for long-term success.

Henry Ford is an example of how physical capital works. By introducing efficient machinery, tools, and infrastructure, he revolutionized mass production in the early 20th century. Productivity increased and cars became more affordable.

Sources of Capital

To understand the sources of capital in business, dive into the section on “Sources of Capital.” Discover how equity financing, debt financing, and other sources of capital can provide solutions for acquiring funding for your business ventures. With these sub-sections, you’ll gain insight into the different avenues available for securing the necessary financial resources in your entrepreneurial journey.

Equity financing

Equity financing gives businesses the ability to get big amounts of money without owing debt. It provides investors a chance to be part of a company’s success and profit from any potential rise in share prices. This technique also divides the risk amongst various shareholders, lessening the burden on single investors.

In 1792, the NYSE was created. This is a remarkable event in equity financing history. This central market let firms list their shares for public trading, granting more liquidity and access to capital. With advancements in technology and regulations, equity financing has transformed and is now an important part of the current financial scene.

Definition and explanation

Sources of capital are the avenues through which a company can get money for operations and expansion. These include both internal and external sources.

Internal financing uses the company’s earnings or profits. Selling assets or inventory can also create cash.

External financing involves getting money from banks or credit unions.

Equity financing gives investors a share in business profits and decision-making, but reduces ownership percentages.

Venture capitalists and angel investors offer capital plus expertise and guidance to startups and small businesses.

Governments or non-profits give business grants for certain industries or projects that benefit society.

When looking for sources of capital, analyze benefits, drawbacks, and implications based on your business’s needs. By considering different sources, you can optimize your financial structure for growth.

Pros and cons of equity financing

Equity financing offers a range of advantages! Flexibility, growth prospects, and shared risks. But, be aware of the potential loss of control. Let’s explore the pros and cons with creativity and flair!

Flexible: Access capital without needing to repay loans – more financial freedom!

Growth: Raise lots of capital to expand and pursue new opportunities.

Shared Risk: Investors who own shares also share the risk, reducing the burden on the business.

Expertise & Connections: Equity investors often bring valuable knowledge and connections, helping to navigate challenges.

Loss of Control: Owners may have to surrender control over decisions.

Don’t miss out! Equity financing could open up expert investors, growth potential, shared risks and more. Make the most of it and watch your business soar!

Debt financing

Debt financing offers businesses a chance to obtain funds they wouldn’t usually be able to. It can be used for various purposes, like growth, buying equipment or inventory, or funding day-to-day operations.

A benefit of debt financing is that the business will keep total management and control. Unlike equity financing, debt financing won’t reduce ownership. This is good for entrepreneurs who want to hold full control and power of decisions.

Here’s an example of debt financing: a small bakery wanted funds for enlargement. Instead of getting investors who’d take a share, they got a loan from a bank. This loan enabled them to buy new baking tools and employ more staff. As sales rose because of the increased production ability, the bakery paid off the loan in regular payments while still having full control over their business.

The phrase ‘ Sources of Capital ‘ refers to the various ways businesses acquire money to fund their operations and investments. Equity financing , debt financing , and retained earnings are all examples of internal and external sources.

Here’s a table of the different sources:

These sources are important for businesses to have the funds they need to progress and operate.

Crowdfunding, venture capital, and government grants are also alternative methods for businesses to acquire capital.

For example, an entrepreneur secured venture capital for her tech startup. This capital allowed her to quickly scale her business and launch her product sooner than expected.

Overall, understanding the different sources of capital helps businesses make smart financial decisions and create more opportunities to grow and succeed.

Pros and cons of debt financing

Debt financing is borrowing money to finance business operations. It has advantages and disadvantages.

Pros of debt financing:

• Easy access to capital : Businesses can get large sums of money quickly, allowing them to pursue opportunities or even out cash flow.
• Tax benefits : The interest paid on debt is usually tax-deductible, reducing the overall tax burden.
• Retaining control : Unlike equity financing, debt does not reduce ownership in the business. Owners still have control.
• Predictable repayment : Debt comes with repayment terms, making it easier to plan and budget.

Cons of debt financing:

• Interest costs : Borrowing money has interest costs that add to business expenses. High interest rates can decrease profitability.
• Default risk : If a business can’t make timely repayments, it might default on debt. This can harm credit ratings and limit borrowing options.
• Less flexibility : Debt creates fixed financial obligations that must be met regardless of performance or market conditions. It limits flexibility in making decisions.
• Loss of assets : Some lenders may require collateral. Failing to repay the debt could result in seizure of assets.

Businesses should evaluate the pros and cons of debt financing based on their situation and financial goals.

Henry Ford is a famous example of debt financing. In the early 1900s, he used it to fund his venture. Despite skepticism, he secured capital to develop the Model T. This highlights the power of debt financing in driving innovation and industry transformation.

Other sources of capital

Businesses can consider alternative funding options aside from traditional methods. These provide a new way to get capital to expand and grow. Here are some examples:

• Angel investors: People who use their own funds to invest in startups or small companies. Most times, they provide more than just money, but mentorship and industry connections too.
• Venture capital: Funds invested in high-growth potential companies. Usually, large amounts given in exchange for equity or ownership, as well as advice and expertise.
• Crowdfunding: Businesses can raise money through online platforms. People donate small amounts of money to support a project or business idea.
• Government grants: Agencies offer grants to businesses that meet certain criteria. These don’t need to be paid back – but require rigorous reporting and accountability.

These alternatives have unique advantages. Angel investors , for instance, contribute experience and knowledge as well as money. Crowdfunding campaigns can create a customer base before a product or service is launched.

Pro Tip: Research each option before making any decisions. Understand the terms, risks, and benefits.

Grants and subsidies

Grants and subsidies are valuable sources of capital. Let’s explore them! Here’s a quick overview:

These sources of support are tailored to specific purposes and have been around since ancient times. Governments and organizations have spent funds to foster development and stimulate growth. Grants and subsidies provide individuals and businesses with the funding to turn their ideas into reality, or to expand operations. They are vital for progress across all sectors.

Alternative financing options (crowdfunding, angel investors, etc.)

Alternative financing options, such as crowdfunding and angel investors , are important for businesses seeking to raise capital. These options offer entrepreneurs a way to secure funds without relying on banks. Let’s explore the different alternative financing options.

Table: Alternative Financing Options

Each option has its own set of advantages and disadvantages. Crowdfunding provides easy access to capital, but you may not have control over the investor base. Angel investors bring expertise and guidance, but you may have to give up autonomy in decision-making. Venture capital firms offer extensive financial and strategic support, but there is a high equity stake and strict vetting process. Lastly, peer-to-peer lending offers flexible repayment terms, but the interest rates may be higher.

There are countless stories of successful alternative financing. A tech startup used crowdfunding to get vital investment. They had an engaging pitch that resonated with backers and they surpassed their goal within weeks. This shows that alternative financing can help businesses get the capital they need for growth.

Managing Capital

To effectively manage capital in business, you need to understand its importance and implement appropriate strategies for allocation, utilization, and evaluation. This involves recognizing the significance of effective capital management, devising strategies for capital allocation and utilization, and consistently monitoring and evaluating capital efficiency. Each sub-section will provide valuable insights into these aspects of managing capital.

Importance of effective capital management

The significance of capital management cannot be over-emphasized. It’s the secret to achieving financial prosperity and sustainability for any organization. When capital is managed expertly, it guarantees the right amount of funds are allocated to different aspects of the business – operations, expansion, research and development, and marketing . This helps companies make informed decisions, seize opportunities, and overcome challenges successfully.

Effective capital management consists of various strategies and techniques. One such approach is optimizing cash flow by precisely monitoring incoming and outgoing payments. This helps companies recognize potential cash deficits or surpluses beforehand and take appropriate action. Another important element is managing debt cleverly to minimize interest expenses and keep a healthy balance sheet.

Moreover, successful capital management involves evaluating risks associated with investments and making rational decisions about allocating resources. This requires a deep understanding of the business’s financial standing, market trends, and industry trends. By examining all these factors cautiously, companies can guarantee their capital investments give maximum returns.

Along with these strategies, here’s an inspiring true story about effective capital management in action. A few years ago, a small manufacturing company was facing financial issues due to inadequate capital utilization. But, under new leadership, the company implemented sound measures to optimize its capital allocation.

The first step was conducting a thorough assessment of its assets and liabilities. They identified superfluous or underutilized assets that were taking up valuable capital. These assets were sold or repurposed to generate extra income.

Next, they restructured their debt by negotiating better deals with lenders. This helped reduce interest expenses and better their cash flow situation.

Also, they concentrated on improving working capital management by carrying out strict inventory control procedures. This cut carrying costs and freed up funds for other critical areas of the business.

Eventually, these efforts paid off as the company experienced remarkable improvements in profitability and growth. With efficient capital management practices in place, they were able to invest in new technologies, expand their market reach, and diversify their product offerings.

Strategies for capital allocation and utilization

Check out the table below to see what strategies successful companies use:

• Cost-cutting: reduce costs without compromising quality.
• Diversification: invest in various industries or sectors.
• Research and Development: allocate funds for innovation and new products.
• Debt Financing: get funds with loans or bonds.
• Asset Acquisition: buy valuable assets to help the business.

Plus, companies can also focus on strategic partnerships, mergers, acquisitions, and reinvesting profits to grow.

For long-term success, it’s important to allocate capital for research and development. This will help with innovation, staying competitive, and meeting customer needs.

To show the importance of good capital allocation, take XYZ Corporation. Market competition was tough, so they put capital into upgrading their production facilities. This brought cost savings and high product quality. As a result, XYZ Corporation saw huge market share and profit growth.

By using different strategies for capital allocation and utilization, companies can stay ahead in the business world while growing and staying financially secure.

Monitoring and evaluating capital efficiency

Measuring and assessing capital efficiency is key for success. Here’s how:

Metrics: Return on Investment, Net Working Capital, Debt-to-Equity Ratio.

Calculation:

• (Net Profit / Cost) * 100
• Current Assets – Liabilities
• Total Debt / Shareholders’ Equity * 100

Target Value: >10%; Positive; <50%.

Monitoring capital efficiency means regularly checking these metrics against set targets. This helps businesses to understand their financial performance and spot potential problems. If the return on investment is lower than expected or the debt-to-equity ratio is too high, action needs to be taken.

Also, monitoring and evaluating capital efficiency enables companies to spot growth opportunities and reduce risks. It helps to identify underperforming assets or projects which might be wasting resources. By investing in profitable areas or divesting from low-performing investments, businesses can optimize their portfolio and improve overall profitability.

In summary, closely monitoring capital efficiency is essential for long-term financial success. It helps businesses to allocate resources wisely, increase productivity, and cut down on unnecessary costs. Analyzing financial performance constantly assists in making informed decisions and achieving organizational goals.

Ernst & Young have reported that companies who consistently assess their capital efficiency are more profitable and create more value for their shareholders than their competitors.

To solidify your understanding of capital in business, let’s dive into the conclusion. Recap of key points discussed and final thoughts on the role of capital in business success are the solutions you’ll find in this section.

Recap of key points discussed

I. Recap of key points discussed:

• We discussed numerous important topics.
• Let’s review the most crucial ones to ensure clarity.
• Knowing these key points will give a comprehensive view.
• This point focused on the importance of effective communication.
• Talking is vital for expressing ideas and creating understanding.
• Using clear and brief language enables us to engage and connect with our audience.
• We dove into the value of time management.
• Making good use of our time helps to maximize productivity and reach goals.
• Setting priorities properly can result in better organization and lower stress levels.
• The last point discussed the advantages of teamwork and collaboration.
• Working together boosts creativity and problem-solving skills.
• Adopting different perspectives improves results and sets up a pleasant work environment.

II. Unique details:

• We also brought up the significance of adaptability in today’s changing world.
• Adapting to alterations allows individuals and organizations to prosper in varying conditions.

III. Pro Tip:

Remember, consistency is essential to effectively apply the discussed key points throughout your professional journey.

Final thoughts on the role of capital in business success

Capital is a key element to success for any business. It’s like the fuel that helps them seize all the opportunities. Without enough capital, a business can struggle with expansion, equipment and research. While capital is very important, it doesn’t guarantee success. Factors like leadership, planning and a strong market position also contribute.

Capital can give a business credibility and make them reliable. It can open new doors, get top talent and collaborate with other companies. Plus, capital helps businesses through tough times like economic downturns and unexpected expenses. Having enough reserves keeps operations going and protects them from external shocks.

An example of capital’s power is XYZ Corporation . They began with a small seed investment, but got more money from venture capitalists for their product and team. This gave them the finances to scale up, hire great people and invest in technology. In a few years, they became a market leader and had a lot of revenue and customers.

Overall, capital is important but it’s only one part of the equation. Companies must also focus on management, decision-making and growth strategies. A balance between capital and other factors is what will help businesses truly excel.

Frequently Asked Questions

1. What is capital in business?

Capital in business refers to the financial resources or assets that a company uses to operate, invest, and grow. It can include cash, equipment, buildings, inventory, and even intellectual property.

2. Why is capital important in business?

Capital is essential because it enables businesses to fund their operations, purchase necessary assets, hire employees, and expand their operations. It provides companies with the resources needed to generate revenue and achieve their goals.

3. How do businesses obtain capital?

Businesses can obtain capital through various means, such as investments from owners or shareholders, bank loans, venture capital funding, crowdfunding campaigns, or by issuing bonds or stocks in the financial markets.

4. What is the difference between debt and equity capital?

Debt capital is borrowed money that a business must repay with interest over a specific period. Equity capital, on the other hand, represents ownership in the company and is obtained by selling shares or stocks to investors, who become partial owners and share in the company’s profits or losses.

5. How is capital different from revenue?

Capital represents the assets and resources a business owns, while revenue refers to the income a company generates from its operations. Capital is a long-term investment, whereas revenue is the short-term result of business activities.

6. Can a business operate without capital?

It is extremely difficult for a business to operate without any capital. While some businesses may start with minimal capital or rely on initial revenues, having access to sufficient capital is crucial to support ongoing operations, investments, and growth.

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What Is Capital in Business?

Capital Structure of a Business Explaineed

• What is Capital in a Business?
• Capital Structure of a Business

Other Terms for Business Capital

Business capital and taxes.

• Asset Information for Taxes

Frequently Asked Questions (FAQs)

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The term capital has several meanings, and it is used in several areas in business. In general, capital is accumulated assets or ownership. The roots of the term "capital" go back to Latin, where the term was capitālis, "head," and Latin capitale "wealth.

Capital is important to businesses because the cost of buying and owning these investments can affect the business's value and tax situation.

Key Takeaways

• Business capital is all of the long-term assets of the business that have value while the business is operating and in the sale of a business.
• Capital in accounting terms is the accumulated wealth or net worth of a business and the owners, expressed as the value of its assets minus its liabilities.
• Capital in taxes is assets that a business uses to make a profit.
• A business can lower its business taxes by spreading out its tax deductions for capital expenses over several years.

Capital in Business

Business capital is in the form of assets (things of value). Capital is a necessary part of business ownership because businesses use assets to create products and services to sell to customers. Capital can have one of three specific meanings:

• The amount of cash and other assets (owned by a business, including accounts receivable, equipment, inventory, and buildings of the business)
• The accumulated wealth or net worth of a business, represented on a balance sheet by its owner's equity (ownership) minus  liabilities
• Stock or ownership in a company, the capital account of a stockholder

Capital for Tax Purposes

The Internal Revenue Service (IRS) uses the term capital assets to describe assets that are used to generate a profit. These assets aren't easily turned into cash and they are expected to last more than one year. A building, equipment, and vehicles are examples of capital assets for tax purposes.

Capital Structure of a Business 

The capital structure of a business is the mix of types of debt (borrowing) and equity (ownership). Business capital is shown on the business's balance sheet . The format for this report shows all the asses of the business in one column and the liabilities and owner equity in the other. Total assets must equal total liabilities plus total owner equity.

Another way to express capital in business is through its  debt to equity  ratio. This ratio divides the company's total liabilities by its shareholder equity, measuring how much of the company is financed by debt. An acceptable ratio is 2:1, meaning that debt can be two times equity.

Other associated terms which relate to capital in business situations are:

• Capital gains : Capital gains and losses are increases or decreases in the value of stock and other investment assets when they are sold.
• Capital improvements : Improvements made to capital assets, to increase their useful life, or add to the value of these assets. Capital improvements may be structural improvements or other renovations to a building to enhance usefulness or productivity.
• Venture capital : Private funding (capital investment) provided by individuals or other businesses to new business ventures.
• Capital lease : A lease of business equipment that represents ownership and is shown in the company's balance sheet as an asset.
• Capital contribution : A contribution to the business by an owner, partner, or shareholder in the form of money or property. The contribution increases the owner's equity (investment) in the company.

Businesses with capital assets must deal with two types of tax reporting. The business must report depreciation, amortization, and deductions for income taxes during the time the business owns the asset. It must also report and pay capital gains taxes when the asset is sold.

Income Taxes

The expense of buying or improving an asset must be capitalized for income tax purposes. That means the assets must be spread out over a number of years, rather than being deducted in one year. Each year, the business can take a tax deduction for the yearly deduction for all capital assets.

The two processes for capitalizing assets are:

• Depreciation : For tangible assets like vehicles, equipment, furniture, and buildings
• Amortization : For intangible assets like patents, trademarks, and trade secrets

Capital improvements on an asset, which add to an asset's value and must be capitalized, are distinguished from repairs, which are deductible.

Some deductible repairs are painting, repairing a roof, or fixing an elevator. Some capital improvements that must be depreciated including replacing a roof or improving a storefront.

Business startup costs are considered capital assets and they must be amortized. But you may be able to up to $5,000 of business startup costs and $5,000 of organization costs (for forming and registering your new business) in the first year you are in business.

Capital Gains Tax

Businesses that have capital assets must pay capital gains tax on those assets when they are sold. Capital gains taxes are payable at a different rate from ordinary business gains. Short-term capital gains are taxed as ordinary income to the individual, and corporations pay short-term capital gains tax at the regular corporate tax rate of 21%. Long-term capital gains (held more than a year) are taxed at different rates, depending on the individual's income.

Gathering Asset Information for Taxes

Capitalizing business assets is probably the most difficult and complicated part of business taxes; it's not something you should attempt yourself. Before you turn over your yearly records to your tax preparer, gather all the information you can on the original costs of each asset, called " asset basis ."

Information for asset basis for physical assets includes:

• Sales price
• Installation and training
• Recording fees
• Permits and inspection fees

The asset basis for intangible assets like patents, copyrights, trademarks, trade names, and franchises is usually the cost to buy or create it. For a patent, for example, the basis is the cost of development, including costs of research and experiment, drawings, working models, attorney fees, and application fees. You can't include your time as the inventor, but you can include the time for workers you paid to help you.

What is capital in business?

Capital is the assets (things of value) in a business that the business uses as collateral for loans and to pay expenses. For tax purposes, business capital assets are the long-term assets (like equipment, vehicles, and furniture) used to make a profit.

You can see the types of business capital by looking at the "Assets" column on a business balance sheet. A balance sheet shows assets on one side and liabilities (what's owed to others) plus owner's equity (ownership) on the other side, with total assets equal to total liability + owner's equity.

What is an example of capital in a business?

Here's a list of all the types of business capital as they are shown on a business balance sheet. They are in order by how quickly they can be turned into cash, and categorized by short-term and long-term assets.

Short-term assets are used up or paid within a year.

• Accounts receivable (money owed by others)
• Prepaids (like insurance)

Long-term assets (capital assets) are used over a number of years:

• Furniture and Fixtures
• Equipment and Machinery
• Land and Buildings

How do businesses use capital?

Capital is important to a business in both short-term and long-term situations. In the short term, it's used to fund operations. For example, cash is an important asset to a business because it is used to pay expenses.

In the long term, capital assets like buildings and can be used as collateral for a business loan. For example, the equity in a business building can be used to get a second mortgage. To finance short-term cash flow shortages, a business can sell accounts receivable to a factoring service for quick cash.

Why do businesses need capital?

Businesses need capital to attract investors. Investors can use capital to analyze the strength of a business, using a debt-to-equity ratio. This ratio compares long-term capital to owner's equity; an acceptable ratio of 2:1, meaning that debt is twice equity.

Capital is also important in selling a business because buyers also look at the strength of business assets and their usefulness to fund the business purchase or make changes. For example, a buyer could sell off several buildings to get cash to expand into other markets.

Legal Information Institute. " Capital Assets ." Accessed Aug. 12, 2021.

International Journal of Management Sciences, " Financial Ratio Analysis of Firms: A Tool for Decision Making ," Page 136-37. Accessed Aug. 19, 2021.

Tax Policy Center. " How Does Corporate Income Tax Work ?" Accessed Aug. 19, 2021.

IRS. " Capital Gains and Losses - 10 Helpful Facts to Know ." Accessed Aug. 19, 2021.

IRS. " Publication 551 Basis of Assets ." Accessed Aug. 19, 2021.

What Is Capital Planning?

The act of a formal planning process requires you and your company to zoom out, way out. So often individuals within an organization get caught up with the day-to-day that they hardly have an opportunity to think about next quarter’s strategies, much less one to five years down the road.

Capital Planning is here to help.

Even those companies that do have a “5 Year Plan” often fail to align those goals with a formal capital planning process. Without doing so, many of these plans turn out to be not much more than “pie in the sky dreams” or even more simply put, tag lines, and “company vision statements.”

Of course, tying in a Capital Plan with strategic plans is more work, but without it, you could run into problems.

Below we are going to explain the basic components of the Capital Planning process and steps you can follow to implement a Capital Planning team within your role and/or organization.

Capital Planning Basics

• Capital Planning  – The process of budgeting resources for the future of the organization’s long-term plans. Not limited to plans already in place, but also on the projection of future projects and their gains and losses.
• Capital Request Form  – This form is created and used to standardize the process of information gathering for each capital planning project detail. This form allows the planning team member or members to quickly scan and vet the information concerning its specific project.
• Capital Project Drivers  – Every organization has different definitions of drivers, but typical common drivers are growth, obsolescence, regulatory, strategic, alignment to the project goals, and cost reduction and/or avoidance.
• Capital Planning Group  – This is the team or team member responsible for the management of the Capital Planning project. They are generally in charge of vetting the capital request forms for sub-projects, prioritizing and reprioritizing the available capital, condensing, and reformatting project information for presentation to management and executive approval.
• Capital Management Committee  – These are the managerial or executive persons or groups responsible for approving or denying the Capital Planning project’s funding and spending plans.
• Capital Project Approval Processes  – This process is typically unique to your own company, but these usually require different formatting, version control, and approval processes. Many companies have different Capital Planning approval processes for differing amounts of capital. For example, one company might have any project expected to have a spend of over $500,000 be required to go through their major approval process, while another company might consider this figure to be far below their risk level, and only require amounts of 10 million dollars or more to be fully vetted.
• Minor Versus Major Capital  – As mentioned above, each company will have its own risk tolerances. Minor Capital categories require little to no formal approval while Major Capital categories might require months of intensive research and several rounds of vetting before it moves to a board of directors vote for approval. Each company will have its own delineation on Minor and Major capital categories for its Capital Planning processes.
• Operating Capital Versus New Capital  – An example of minor capital. Generally, routine or Operating Capital consumes the bulk of business operations and is standard and expected. These projects can have bulk or automated approval as long as they fall within company parameters.
• Finance  – This portion of your Capital Planning team has a hand in both the Capital Planning Group side, as well as the Capital Management side. For instance, you might have a financial analyst on the planning side, and the CFO on the Management side that has the final say and can officially approve capital funds to be spent.
• Management Programs  – Inpensa provides a unique and custom-built Capital Planning  management software program  that can provide the platform you and your team need to effectively manage version control; be team enabled to allow for edits without sending files via email; and format reports ready for your Capital Management Committee’s approval.
• Business Unit Leaders  – These are the leaders of the multiple operating groups who sit on the Capital Management Committee for the approval process. We already talked about the Finance portion above (CFO) but this could be anyone from a manager of a department to the president, CEO, or even board of directors, if the project is large enough.
• Monthly Variance Report  – These reports are sent out monthly (sometimes quarterly) to inform the decision-makers of incremental progress. They also serve as an early warning detection for everyone on the capital planning team. Detecting overspends, delays, early wins, and budget surpluses about every 30 days. These are increasingly important as the modern world causes pricing and logistics to change by the minute, versus changes by the month, quarter, or year in the past.

Now that we have a basic rundown of the who and what is working with the Capital Planning Process, let’s  continue to why Capital Planning and using software you can trust is important.

Planning Helps You Avoid Problems

Capital Planning is a tight rope. There are, on one hand, executives, and heads of departments who over-promise, and expect you and the Capital Planning team to “make the numbers work” on near-impossible projects, and on the other hand there is a team of financial professionals who often times get into a habit of saying “it doesn’t make financial sense for the company to pursue this project/idea/dream at this time.”

This may be done without doing the true due diligence every capital investment requires. Inpensa offers a custom-built Management Software  that allows every company to complete the due diligence needed and demanded for both sides of this tight rope.

On the first hand, a program like Inpensa’s allows you to fiscally prove to a senior member of the organization that a Capital Expenditure/Investment doesn’t align with the current goals of the organization with clear facts and numbers.

The opposite side of this tight rope is also solved by Inpensa’s offering of a strong and streamlined solution that allows the Capital Planning team to cut through the busy work of structuring, finding Excel formulas they have long forgotten, and formatting version after version to fit individual aesthetic preferences with a pre-formatted reporting dashboard.

With all of this, a Capital Planning team can quickly get to work on the actual numbers and planning of every project, not just the Major Capital categories. This leads to increased performance on the Capital Planning team and increased profits, lower risk, and more effective long-term success for the overall organization.

Steps For Effective Capital Planning

• Ground Your Plan In Reality  – Many organizations that are starting the capital planning process from scratch make the mistake of not making plans based on past performance and present numbers. Organizations often make the mistake of desiring 300% growth in the next five years, when the past five years have produced 85% growth. It is much better to be realistic and grow 105% in the next five years with a Capital Plan based on reality, than to wish for 300% growth and get 80% again. A thorough assessment of the prior five-year financials and operating performance is key to understanding liquidity needs and drivers in the future for performance, along with the macro view of your organization’s business and commodity cycles. Dream big, but have a plan in place to produce your organization’s vision.
• Define Your Companies Five-Year Strategic Plan  – Plans and priorities are a requirement, and tools like Inpensa’s Capital Planning software can help you with expected capital requirements and how they can align with the organization’s long-term goals.
• Financial Modeling  – This is where Inpensa thrives. Financial modeling is what Inpensa makes easy. Without a program like  Inpensa’s case management software , you can quickly lose yourself within increasingly cumbersome and non-uniform financial models. Financial models quantify the impact of capital, ground your numbers with historical performance, and give decision makers easy to read financial reports and understand overviews on the expected capital needs and gains as projects move forward.
• Modeling Alternatives  – Use software like  Inpensa’s  to design alternatives to capital expenditures and deployment. Some of the most successful ideas for organizational success come from the Capital Planning team asking “What if?” What if we tweaked this plan? What if we explored this opportunity instead? Big wins come from using modeling software that allows you to confidently and easily explore all the options for your organization.
• Implement the Plan  – Meet with the decision-makers within your organization. Ask them what the Capital Planning structure and approval process is for your company. Now it’s time to get organized. Play by the rules and policies provided to you, document, research, model, and present your plan. Get approval, provide monthly reports, and meet your goals.

Inpensa knows Capital Planning comes with many frustrations, but our project management software is not one of them.

Follow the above instructions, get to know your team, and meet your goals with Inpensa’s custom software and Capital Planning advice and modeling. Do not let your companies Capital Plan become just another company “vision.”

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Business Capital: Definition and Where to Get It

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Business capital, or small-business capital, commonly refers to lump sums of money that come from external sources and are used to fund business purchases, operations or growth. These sources can include small-business loans , as well as free funding like small-business grants .

The right type of business capital for you depends on how established your business is, as well as other factors like your funding purpose and how fast you need it.

How much do you need?

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We’ll start with a brief questionnaire to better understand the unique needs of your business.

Once we uncover your personalized matches, our team will consult you on the process moving forward.

What is business capital?

Technically speaking, business capital is anything that generates value for your business. That can include financial capital like cash, human capital like employees and personnel or physical capital like real estate and intellectual property.

Business capital, or small-business capital, can also simply refer to external financing, or lump sums your business attains to fund operations or large purchases.

Types of business capital

There are several types of business capital that you can use to fund your business at various stages.

Debt funding

With debt funding — taking out a small-business loan — you borrow money from a third party and repay it, with interest, over a specific period of time. Debt funding can be a good option for a variety of small businesses, especially established companies looking to grow their operations.

Business term loans

With a business term loan , you receive a lump sum of capital upfront from a lender. You then repay the loan, with interest, over a set period of time — usually with fixed, equal payments.

Business term loans are well-suited for specific funding purposes, such as purchasing real estate or renovating your storefront. Some loans, like equipment financing , are designed to accommodate specific business purchases.

You can get business term loans from banks, credit unions and online lenders . Banks and credit unions will offer term loans with the most competitive rates and terms, but you’ll need to meet strict criteria to qualify. Online lenders are typically more flexible and may work with startups or businesses with bad credit. These companies will often charge higher interest rates.

» MORE: Compare the best banks for business loans

SBA loans are partially guaranteed by the U.S. Small Business Administration and issued by participating lenders, typically banks and credit unions. There are several types of SBA loans , but generally, these products are structured as term loans.

These loans usually have low interest rates and long repayment terms and can be used for a range of purposes, such as working capital, equipment purchases and business expansions.

This type of government funding can be a good option if you’re an established business with good credit but you can’t qualify for a bank loan.

>> MORE: Top SBA lenders

Business lines of credit

A business line of credit is one of the most flexible types of business capital — making it well-suited to meet the working capital needs of new and established companies alike.

With a business line of credit, you can draw from a set limit of funds and pay interest on only the money you borrow. After you repay, you can draw from the line as needed. Lines of credit are often used to manage cash flow, buy inventory, cover payroll or serve as an emergency fund.

Like term loans, business lines of credit are available from traditional and online lenders. Traditional lenders typically offer credit lines with the lowest rates but require an excellent credit history and several years in business to qualify.

Online lenders, on the other hand, may charge higher interest rates but generally work with a wider range of businesses. Some online lenders offer startup business lines of credit and/or options for borrowers with fair credit.

Business credit cards

Business credit cards work similarly to personal credit cards, although business cards typically offer rewards for spending on operational expenses, such as gas, internet, software purchases and more.

Business credit cards can be a good option for startups because they offer quick access to capital and most entrepreneurs with good personal credit can qualify. You may not want to completely fund your business with a credit card , however, because overspending can lead to expensive debt that’s difficult to repay.

In general, business credit cards can be useful for all types of entrepreneurs because they allow you to earn rewards (e.g., cash back, miles, points) for everyday spending on your business purchases. Responsible spending on a credit card can also help you establish business credit, which will allow you to qualify for more competitive loan products.

»MORE: Debt vs. equity financing

Equity funding

With equity funding , you receive money from an investor in exchange for partial ownership of your company. If you’re a startup that can’t qualify for a business loan or you want to avoid debt, equity funding may be a suitable option for your needs.

Angel investors and venture capital firms

Angel investors and venture capital firms are common forms of equity financing that involve receiving money in exchange for equity in your company.

With angel investors , you work with individuals who invest their money into your business. These individuals often invest in startups with high growth potential. In addition to the equity they receive, your angel investor may offer business expertise to help your company progress.

A venture capital firm, on the other hand, will be an individual or group that invests from a pool of money. VCs may require a higher amount of equity in your company as well as some operational control, such as a seat on the board of directors. Compared to angel investors, VCs tend to offer larger amounts of money and invest in businesses that are a little more established.

You can find angel investors and venture capitalists through organizations like the Angel Capital Association or the National Venture Capital Association . You can also search online for investors in your area as well as attend industry events and talk to other business owners.

Either of these startup funding options may be a good option for your business if you’re looking to avoid debt. Finding and receiving capital may take time, however, and some businesses may not be able to meet the requirements set out by an angel investor or venture capital firm.

Crowdfunding

With crowdfunding your business , you raise money online through public donations in exchange for equity or rewards, such as an exclusive product or early access to an event.

You can set up a campaign using a crowdfunding platform, which allows you to manage the process through the platform’s website.

With equity crowdfunding , you can use platforms like Fundable, StartEngine and Netcapital to receive capital in exchange for ownership of your business. For rewards-based crowdfunding , you can turn to well-known websites like Kickstarter or Indiegogo .

Crowdfunding can be well-suited for a range of businesses as long as they’re dedicated to managing and promoting a campaign. Rewards-based crowdfunding is usually a better option for small amounts of capital, especially for businesses with a unique product or service.

Equity crowdfunding, on the other hand, may give you access to larger funding amounts, but you may have to meet stricter eligibility requirements to use one of these crowdfunding platforms.

» MORE: How to fund your business idea

Free business capital

On top of these main sources of external financing, entrepreneurs can access free small-business capital through grants. Grants do not have to be repaid and are available from government agencies, corporations and nonprofits.

Small-business grants are available for new and existing businesses. You can get a business grant from a few sources:

Federal and state governments. Government agencies offer a range of small-business grants, including those designed for companies that focus on scientific research and technology innovation. Grants.gov provides a comprehensive list of business grants available from the federal government.

Private corporations. Many corporations offer annual small-business grant programs or competitions, such as the FedEx Small Business Grant Contest . In many cases, you have to meet specific criteria to qualify for one of these grants.

Nonprofits. Certain nonprofits offer grants designed for small-business owners. Among these organizations, some focus on providing business grants for women or business grants for minority groups .

Business grants are a good option for startups as well as companies that can’t qualify for other types of small-business capital. Because grants give you access to free capital, however, applications are competitive — and often time-consuming.

Bootstrapping

In addition to the previous external financing sources, many small-business owners also bootstrap, or self-fund, their business venture. Options for bootstrapping your business include using personal savings or tapping into their retirement account through a Rollover as Business Startup , or ROBS.

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How to get business capital

The right funding option is different for every small-business owner. And the best type of funding for you now might not be the best choice to meet your needs later.

Consider why you need business capital. Your funding purpose is a key component of which type of business capital is best for you, and how much money you need. Plus, any potential lender or funder will likely ask for this information. 

Decide which type of funding is best for your business. Before you start researching, think about which type of business capital is best for you. Consider if you would rather take on debt or give up business equity, how fast you need access to funding and your current resources and qualifications. 

Research lenders or funders. Once you’ve decided which type of capital your business needs, you can begin researching providers — either lenders, investors or funding platforms — to determine the best options. 

Gather documents. It may vary based on your capital provider, but generally you’ll need documents like your business plan, filing information and financial information like profit and loss statements, tax returns or bank statements. 

How you get small-business capital depends on why you need capital and how long you’ve been in business. Startups may consider self-funding, working with angel investors or applying for grants. Businesses with at least a year in operation and solid finances, likely have more options, such as SBA funding and other types of business loans.

Capital in business generally refers to anything the business uses to generate value, including finances, physical assets, human resources and more. It can also refer to external sources of financing, like loans or grants.

If you need money to get your business off the ground, you’ll likely have difficulty qualifying for traditional funding, like a term loan or line of credit. Instead, you might turn to alternative sources, such as friends and family, crowdfunding, small-business grants or angel investors for the startup capital you need.

On a similar note...

Capitalization in Business Finance

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on March 30, 2023

Fact Checked

Why Trust Finance Strategists?

Table of Contents

What is the meaning of capitalization.

Capitalization refers to the amount of capital required by a business enterprise. Capital can be obtained in the following ways:

• Issuing equity and preference shares
• Issuing debentures
• Obtaining loans
• Retained earnings

Therefore, capitalization is the sum total of the funds received through shares , bonds , loans, and retained earnings . In other words, the sum total of fixed capital and working capital forms capitalization.

Definitions of Capitalization

Some notable definitions of the term capitalization are stated and discussed below.

1. A. S. Dewing: "The term capitalization or the valuation of capital includes the capital stock and debt."

2. Gestenbergh: "For all practical purposes, capitalization means the total accounting value of all the capital regularly employed in the business ."

When determining the capital of a company, the promoter must consider the cost of fixed assets , as well as the cost of establishing, organizing, and running the business, working capital, and sufficient funds to meet contingency demand .

The term capitalization is closely associated with the earning capacity of an enterprise. Both overcapitalization and undercapitalization are dangerous for organizations.

A stage of optimum capitalization is the desired goal of every enterprise.

This is the stage where the company earns a fairly good return.

In a nutshell, these definitions indicate that capitalization refers to all the long-term funds raised through issuing shares, debentures, and loans from specialized financial institutions .

Suppose that a company has the following information on the liabilities side of its balance sheet :

Capitalization, in this case, amounts to the sum total of long-term funds. These are:

• Equity share capital
• Preference share capital
• Loans from IBRD and IFC

Now, it's clearly seen that capitalization—in a broader sense—refers to the process of determining the plan or patterns of financing.

In a narrower sense, capitalization is the sum total of all long-term securities issued by a company and the surpluses not meant for distribution.

It should also be noted that the term capitalization is used only for companies and not for sole proprietorships . Capitalization is capital plus long-term loans and retained earnings.

Capitalization in Business Finance FAQs

What is a capitalization table.

A capitalisation table shows the amount of money that has been borrowed by a business and what each creditor requires in terms of interest. It also shows the day-to-day trading activities such as sales, purchases and other financial transactions. A capitalisation table can be used to compare sales with debtors, creditors, purchases with suppliers or financial transactions.

Why is a capitalization table needed?

A capitalisation table is needed because it shows the amount of money that has been borrowed by a business and what each creditor requires in terms of interest. It also shows the day-to-day trading activities such as sales, purchases and other financial transactions and enables the company to compare sales with debtors and creditors, purchases with suppliers and financial transactions.

What is the capitalization in business finance?

Capitalisation refers to the amount of capital required by a business enterprise. Capital can be obtained through issuing equity and preference shares, Debentures, loans as well as Retained Earnings. The total amount of capital is divided into share capital, preference capital and Debentures.

What is the difference between "shareholders' equity" and "capitalization"?

Shareholders’ equity (or stockholder's equity), also referred to as book value or net worth, represents the total assets minus total liabilities of a company. Capitalization, on the other hand, refers to the amount of money required by a business enterprise. Capital can be obtained through issuing equity and preference shares, Debentures as well as Retained Earnings. The total amount of capital is divided into stockholder's equity, preference capital and Debentures.

What are some examples of financial ratios?

Financial Ratios are mostly used for measuring performance. Some examples of Financial Ratios are return on equity, current ratio, quick ratio and leverage.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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What is a Business Plan? Definition, Tips, and Templates

Published: June 07, 2023

In an era where more than 20% of small enterprises fail in their first year, having a clear, defined, and well-thought-out business plan is a crucial first step for setting up a business for long-term success.

Business plans are a required tool for all entrepreneurs, business owners, business acquirers, and even business school students. But … what exactly is a business plan?

In this post, we'll explain what a business plan is, the reasons why you'd need one, identify different types of business plans, and what you should include in yours.

What is a business plan?

A business plan is a documented strategy for a business that highlights its goals and its plans for achieving them. It outlines a company's go-to-market plan, financial projections, market research, business purpose, and mission statement. Key staff who are responsible for achieving the goals may also be included in the business plan along with a timeline.

The business plan is an undeniably critical component to getting any company off the ground. It's key to securing financing, documenting your business model, outlining your financial projections, and turning that nugget of a business idea into a reality.

What is a business plan used for?

The purpose of a business plan is three-fold: It summarizes the organization’s strategy in order to execute it long term, secures financing from investors, and helps forecast future business demands.

Business Plan Template [ Download Now ]

Working on your business plan? Try using our Business Plan Template . Pre-filled with the sections a great business plan needs, the template will give aspiring entrepreneurs a feel for what a business plan is, what should be in it, and how it can be used to establish and grow a business from the ground up.

Purposes of a Business Plan

Chances are, someone drafting a business plan will be doing so for one or more of the following reasons:

1. Securing financing from investors.

Since its contents revolve around how businesses succeed, break even, and turn a profit, a business plan is used as a tool for sourcing capital. This document is an entrepreneur's way of showing potential investors or lenders how their capital will be put to work and how it will help the business thrive.

All banks, investors, and venture capital firms will want to see a business plan before handing over their money, and investors typically expect a 10% ROI or more from the capital they invest in a business.

Therefore, these investors need to know if — and when — they'll be making their money back (and then some). Additionally, they'll want to read about the process and strategy for how the business will reach those financial goals, which is where the context provided by sales, marketing, and operations plans come into play.

2. Documenting a company's strategy and goals.

A business plan should leave no stone unturned.

Business plans can span dozens or even hundreds of pages, affording their drafters the opportunity to explain what a business' goals are and how the business will achieve them.

To show potential investors that they've addressed every question and thought through every possible scenario, entrepreneurs should thoroughly explain their marketing, sales, and operations strategies — from acquiring a physical location for the business to explaining a tactical approach for marketing penetration.

These explanations should ultimately lead to a business' break-even point supported by a sales forecast and financial projections, with the business plan writer being able to speak to the why behind anything outlined in the plan.

Free Business Plan Template

The essential document for starting a business -- custom built for your needs.

• Outline your idea.
• Pitch to investors.
• Secure funding.
• Get to work!

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Click this link to access this resource at any time.

Free Business Plan [Template]

Fill out the form to access your free business plan., 3. legitimizing a business idea..

Everyone's got a great idea for a company — until they put pen to paper and realize that it's not exactly feasible.

A business plan is an aspiring entrepreneur's way to prove that a business idea is actually worth pursuing.

As entrepreneurs document their go-to-market process, capital needs, and expected return on investment, entrepreneurs likely come across a few hiccups that will make them second guess their strategies and metrics — and that's exactly what the business plan is for.

It ensures an entrepreneur's ducks are in a row before bringing their business idea to the world and reassures the readers that whoever wrote the plan is serious about the idea, having put hours into thinking of the business idea, fleshing out growth tactics, and calculating financial projections.

4. Getting an A in your business class.

Speaking from personal experience, there's a chance you're here to get business plan ideas for your Business 101 class project.

If that's the case, might we suggest checking out this post on How to Write a Business Plan — providing a section-by-section guide on creating your plan?

What does a business plan need to include?

• Business Plan Subtitle
• Executive Summary
• Company Description
• The Business Opportunity
• Competitive Analysis
• Target Market
• Marketing Plan
• Financial Summary
• Funding Requirements

1. Business Plan Subtitle

Every great business plan starts with a captivating title and subtitle. You’ll want to make it clear that the document is, in fact, a business plan, but the subtitle can help tell the story of your business in just a short sentence.

2. Executive Summary

Although this is the last part of the business plan that you’ll write, it’s the first section (and maybe the only section) that stakeholders will read. The executive summary of a business plan sets the stage for the rest of the document. It includes your company’s mission or vision statement, value proposition, and long-term goals.

3. Company Description

This brief part of your business plan will detail your business name, years in operation, key offerings, and positioning statement. You might even add core values or a short history of the company. The company description’s role in a business plan is to introduce your business to the reader in a compelling and concise way.

4. The Business Opportunity

The business opportunity should convince investors that your organization meets the needs of the market in a way that no other company can. This section explains the specific problem your business solves within the marketplace and how it solves them. It will include your value proposition as well as some high-level information about your target market.

5. Competitive Analysis

Just about every industry has more than one player in the market. Even if your business owns the majority of the market share in your industry or your business concept is the first of its kind, you still have competition. In the competitive analysis section, you’ll take an objective look at the industry landscape to determine where your business fits. A SWOT analysis is an organized way to format this section.

6. Target Market

Who are the core customers of your business and why? The target market portion of your business plan outlines this in detail. The target market should explain the demographics, psychographics, behavioristics, and geographics of the ideal customer.

7. Marketing Plan

Marketing is expansive, and it’ll be tempting to cover every type of marketing possible, but a brief overview of how you’ll market your unique value proposition to your target audience, followed by a tactical plan will suffice.

Think broadly and narrow down from there: Will you focus on a slow-and-steady play where you make an upfront investment in organic customer acquisition? Or will you generate lots of quick customers using a pay-to-play advertising strategy? This kind of information should guide the marketing plan section of your business plan.

8. Financial Summary

Money doesn’t grow on trees and even the most digital, sustainable businesses have expenses. Outlining a financial summary of where your business is currently and where you’d like it to be in the future will substantiate this section. Consider including any monetary information that will give potential investors a glimpse into the financial health of your business. Assets, liabilities, expenses, debt, investments, revenue, and more are all useful adds here.

So, you’ve outlined some great goals, the business opportunity is valid, and the industry is ready for what you have to offer. Who’s responsible for turning all this high-level talk into results? The "team" section of your business plan answers that question by providing an overview of the roles responsible for each goal. Don’t worry if you don’t have every team member on board yet, knowing what roles to hire for is helpful as you seek funding from investors.

10. Funding Requirements

Remember that one of the goals of a business plan is to secure funding from investors, so you’ll need to include funding requirements you’d like them to fulfill. The amount your business needs, for what reasons, and for how long will meet the requirement for this section.

Types of Business Plans

• Startup Business Plan
• Feasibility Business Plan
• Internal Business Plan
• Strategic Business Plan
• Business Acquisition Plan
• Business Repositioning Plan
• Expansion or Growth Business Plan

There’s no one size fits all business plan as there are several types of businesses in the market today. From startups with just one founder to historic household names that need to stay competitive, every type of business needs a business plan that’s tailored to its needs. Below are a few of the most common types of business plans.

For even more examples, check out these sample business plans to help you write your own .

1. Startup Business Plan

As one of the most common types of business plans, a startup business plan is for new business ideas. This plan lays the foundation for the eventual success of a business.

The biggest challenge with the startup business plan is that it’s written completely from scratch. Startup business plans often reference existing industry data. They also explain unique business strategies and go-to-market plans.

Because startup business plans expand on an original idea, the contents will vary by the top priority goals.

For example, say a startup is looking for funding. If capital is a priority, this business plan might focus more on financial projections than marketing or company culture.

2. Feasibility Business Plan

This type of business plan focuses on a single essential aspect of the business — the product or service. It may be part of a startup business plan or a standalone plan for an existing organization. This comprehensive plan may include:

• A detailed product description
• Market analysis
• Technology needs
• Production needs
• Financial sources
• Production operations

According to CBInsights research, 35% of startups fail because of a lack of market need. Another 10% fail because of mistimed products.

Some businesses will complete a feasibility study to explore ideas and narrow product plans to the best choice. They conduct these studies before completing the feasibility business plan. Then the feasibility plan centers on that one product or service.

3. Internal Business Plan

Internal business plans help leaders communicate company goals, strategy, and performance. This helps the business align and work toward objectives more effectively.

Besides the typical elements in a startup business plan, an internal business plan may also include:

• Department-specific budgets
• Target demographic analysis
• Market size and share of voice analysis
• Action plans
• Sustainability plans

Most external-facing business plans focus on raising capital and support for a business. But an internal business plan helps keep the business mission consistent in the face of change.

4. Strategic Business Plan

Strategic business plans focus on long-term objectives for your business. They usually cover the first three to five years of operations. This is different from the typical startup business plan which focuses on the first one to three years. The audience for this plan is also primarily internal stakeholders.

These types of business plans may include:

• Relevant data and analysis
• Assessments of company resources
• Vision and mission statements

It's important to remember that, while many businesses create a strategic plan before launching, some business owners just jump in. So, this business plan can add value by outlining how your business plans to reach specific goals. This type of planning can also help a business anticipate future challenges.

5. Business Acquisition Plan

Investors use business plans to acquire existing businesses, too — not just new businesses.

A business acquisition plan may include costs, schedules, or management requirements. This data will come from an acquisition strategy.

A business plan for an existing company will explain:

• How an acquisition will change its operating model
• What will stay the same under new ownership
• Why things will change or stay the same
• Acquisition planning documentation
• Timelines for acquisition

Additionally, the business plan should speak to the current state of the business and why it's up for sale.

For example, if someone is purchasing a failing business, the business plan should explain why the business is being purchased. It should also include:

• What the new owner will do to turn the business around
• Historic business metrics
• Sales projections after the acquisition
• Justification for those projections

6. Business Repositioning Plan

When a business wants to avoid acquisition, reposition its brand, or try something new, CEOs or owners will develop a business repositioning plan.

This plan will:

• Acknowledge the current state of the company.
• State a vision for the future of the company.
• Explain why the business needs to reposition itself.
• Outline a process for how the company will adjust.

Companies planning for a business reposition often do so — proactively or retroactively — due to a shift in market trends and customer needs.

For example, shoe brand AllBirds plans to refocus its brand on core customers and shift its go-to-market strategy. These decisions are a reaction to lackluster sales following product changes and other missteps.

7. Expansion or Growth Business Plan

When your business is ready to expand, a growth business plan creates a useful structure for reaching specific targets.

For example, a successful business expanding into another location can use a growth business plan. This is because it may also mean the business needs to focus on a new target market or generate more capital.

This type of plan usually covers the next year or two of growth. It often references current sales, revenue, and successes. It may also include:

• SWOT analysis
• Growth opportunity studies
• Financial goals and plans
• Marketing plans
• Capability planning

These types of business plans will vary by business, but they can help businesses quickly rally around new priorities to drive growth.

Getting Started With Your Business Plan

At the end of the day, a business plan is simply an explanation of a business idea and why it will be successful. The more detail and thought you put into it, the more successful your plan — and the business it outlines — will be.

When writing your business plan, you’ll benefit from extensive research, feedback from your team or board of directors, and a solid template to organize your thoughts. If you need one of these, download HubSpot's Free Business Plan Template below to get started.

Editor's note: This post was originally published in August 2020 and has been updated for comprehensiveness.

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What is Start up Capital in Business: Insights and Strategies for Entrepreneurs

Pradeep Bhanot

• February 29, 2024
• Reading Time: 8 minutes

Introduction

Embarking on a new business journey? You’re brimming with innovative ideas and the drive to make waves. Yet, one common hurdle stands in your way: securing business startup capital.

Table of Contents

Welcome to the quest for startup capital, the vital spark for your new business engine. As startup founders of this is a critical requirement to fuel growth, so a critical element in the business plan.

My first startup was in the Silicon Valley as the CEO of DevPort. The founder, Shiraz, and I pitched many VCs and Angels to secure funding for our business venture. Our coach from Sequoia Capital which is one of the leading venture capital firms, educated us on different types of startup capital. This article covers much of what we learned.

What in the World is Startup Capital in Business?

In plain English, startup capital in business is the cash you need to cover startup costs. It’s the lifeline that pays for the company’s major initial costs – think office space, market research, and those first few rounds of caffeine that keep the dream alive.

For a software startup business, it is particularly useful to have a running prototype service. Funding will provide the ability to scale development, capture some early adopters, and marketing to get your revenue stream kick started.

Types of Startup Capital

Venturing into entrepreneurship without grasping startup capital types for external investment is like sailing without a compass: progress is possible, but directionless.

Let’s examine the options to ensure the best fit for your business’s growth.

1. Equity Financing

What it is : Equity financing involves selling a piece of your company (equity) in exchange for capital. This means investors get a share of your business and, typically, a say in how things are run.

Pros : The biggest perk? You’re not required to pay back the funds if your business goes under. Plus, it often comes with valuable mentorship and industry connections.

Cons : The downside is the dilution of your ownership and control over your company. Every investor gets a slice of the pie, potentially reducing your piece.

2. Debt Financing

What it is : Debt financing means taking out a business loan from financial institutions that you’ll need to repay over time, with interest. Business loans can come from banks, credit unions, or online lenders in the form of a business loan or credit line.

Pros : You retain full control and ownership of your business. Interest payments are also tax-deductible.

Cons : Repayment obligations for a business loan can be heavy, especially if your business doesn’t generate the expected cash flow. Plus, it usually requires collateral.

3. Angel Investors

What it is : Angel investors are wealthy individuals who provide capital for a business start-up, usually in exchange for convertible debt or ownership equity. They’re often retired entrepreneurs or executives, who may be interested in angel investing for reasons beyond pure monetary return.

Pros : In addition to funds, angel investors can offer invaluable advice, mentorship, and industry contacts. They may also be more willing to take risks on early-stage start ups.

Cons : Like venture capital, accepting angel investment often means giving up a share of your business. Angel investors may also seek involvement in business decisions.

4. Venture Capital

What it is : Venture capital funding is given to start ups and new businesses with perceived long-term growth potential by the venture capital firm. Venture capitalists provide startup capital with the intension of providing advice, so it is more like a partnership.

Pros : Significant capital injection, mentorship, and networking opportunities. Venture capitalists also bring expertise and resources to scale your business rapidly.

Cons : Highly competitive and not easily accessible for all start ups. It involves giving up a significant equity stake and, often, some degree of control over your company.

5. Personal Savings and Bootstrapping

What it is : Providing your own startup capital using your savings or generating business revenue that’s reinvested back into the business. Bootstrapping means raising capital without external help.

Pros : Full control over your business without any dilution of equity. You make all the decisions without needing approval from outside investors.

Cons : Limited by the amount of personal funds available, which can restrict growth. The financial risk is all on you, which can be a heavy burden.

6. Crowdfunding

What it is : Crowdfunding platforms allow you to raise small amounts of startup funding from a large number of people, typically via the Internet. This can be in exchange for rewards, equity, or even new products.

Pros : Great way to validate your product or new businesses idea while simultaneously funding it. It also engages a community of supporters.

Cons : Requires a significant marketing effort when raising capital. Not reaching your startup capital funding goal can mean you get nothing (depending on the platform’s policies).

What it is : Grants are non-repayable funds or products disbursed by grant makers, often a government department, corporation, foundation, or trust, to a recipient. These are typically awarded to businesses that meet specific criteria, such as innovation in certain fields.

Pros : It’s free money that doesn’t need to be repaid and doesn’t dilute your ownership.

Cons : The application process can be complex, competitive, and time-consuming. Grants are also usually very specific about what the funds can be used for.

Seed Capital vs. Startup Capital: What Is the Difference?

Delineating the early financial phases of a venture is essential. This section contrasts seed capital with startup capital, the pivotal funds that nurture a business’s inception and generate revenue.

Seed Capital: Planting the First Financial Seed

Definition and Purpose : Funds from seed investors is often the very first investment a new business secures, aimed at validating the business idea, conducting market research, and covering initial operational costs. It’s about proving the concept can work.

Amounts and Expectations : The seed round for young companies is usually smaller than later rounds of financing. This is early-stage investment used to fund feasibility and conceptual work.

Startup Capital: Fueling the Business Launch

Definition and Purpose : Startup capital refers to the funds needed to launch the business operations fully. This capital is used for initial product development, marketing, and hiring key staff to bring the business idea to market.

Amounts and Expectations : When you raise startup capital rounds, the amounts are generally larger than the seed capital round, reflecting the increased valuation of the business and the move toward market entry and future growth.

How To Choose the Ideal Startup Capital for Your Business?

Deciding on the best type of startup capital for your business isn’t just about weighing the pros and cons.

It’s about introspection, understanding your business’s unique needs, and aligning your startup capital funding strategy with your long-term vision. Here’s how you can navigate this decision-making process:

1. Assess Your Business Stage and Needs

Early Stage vs. Growth Stage : Early-stage companies might find more value in angel investors or crowdfunding to get off the ground, while growth-stage businesses could be more attractive to venture capital firms looking to scale.

Financial Requirements : Quantify how much startup capital you need to reach your next business milestone. This helps in choosing funding sources that can meet these requirements without over-diluting equity or accruing unmanageable debt.

2. Consider Your Tolerance for Risk Personal

Financial Risk : Using personal savings or assets for bootstrapping involves significant personal financial risk. Ensure you’re comfortable with the potential outcomes.

Debt Risk : Debt financing requires confidence in your business’s revenue generation capabilities. Defaulting on loans can have serious consequences, so consider the stability and predictability of your cash flow.

3. Evaluate Your Willingness to Share Control and Profits

Equity Financing : Taking on investors means sharing decision-making power and future profits. If you’re open to collaboration and mentorship, and willing to share the pie for the sake of growth, equity financing could be beneficial.

Private Equity companies typically have a 5-year horizon when they provide startup capital which should be enough to be cashflow positive.

Independence : If retaining control and independence is paramount, look towards bootstrapping, loans, or crowdfunding models that allow you to retain full ownership.

4. Reflect on the Level of Support and Networks You Need

Beyond Capital : Some forms of raising startup capital come with mentorship, industry contacts, and operational support. Venture capital and angel investors often provide strategic guidance that can be invaluable for navigating early challenges.

Solo Journey : If you prefer to lean on your own expertise or have a strong support network, want to maintain your ownership stake, less intrusive forms of capital might be more suitable.

5. Long-Term Business Goals and Vision

Growth Trajectory : A high-growth startup aiming for rapid expansion may benefit from venture capital or angel investment to fuel their ambitions.

Sustainable Growth : Businesses aiming for steady, sustainable growth might find debt financing or bootstrapping more aligned with their goals, avoiding the pressure to scale at an aggressive pace.

6. Compliance with Funding Requirements and Obligations

Grants and Crowdfunding : Understand the specific requirements and obligations of less traditional funding sources. Some grants may restrict how funds can be used, and crowdfunding campaigns often require rewards or returns to backers.

7. Conduct a Reality Check

Market Validation : Ensure there’s a market demand for your product or service. This not only affects your ability to raise capital but also determines the most receptive source of funding.

The technology market is particularly subject to trends. My startup get to market as technology exchanges where cooling, so we missed the market trend that would have made us cool. Monitoring industry analyst hype-cycles can be useful for timing market entry. Your product or service could be before its time. Investors want to see pull from a market or customer segment to feel good about their bet on you.

Investor Appeal : Be honest about your business’s appeal to investors. High-risk, high-reward ventures might attract venture capitalists, while niche or lifestyle businesses might not.

Angels want to see that you have a path to profitability. This can be as little as a year. Make sure you have a clear idea of your planned milestones so they can see you have executed against your plan when you review your progress.

Final Thoughts on Choosing Your Path

Choosing the right startup capital is crucial, blending financial strategy with your business’s vision and goals.

Seek advice from mentors and advisors to navigate financing options to raise capital. Ensure your choice aligns with your growth ambitions outlined in a solid business plan.

Raising Startup Capital: Preparing Your Pitch

Crafting a pitch that sticks: the elevator pitch.

In a world where attention spans are shorter than ever, your elevator pitch needs to be sharp, engaging, and memorable. Tell your story in a way that leaves them wanting more – because first impressions are everything.

The Devil’s in the Details: What Investors Are Really Looking For

Also, beyond the flash and flair, investors are digging for substance. They want to see a strong business idea backed by market research, a clear path to generating revenue, and a team that can execute the vision. Don’t just sell them on the dream – show them the blueprint.

Common Pitfalls and How to Dodge Them

Entrepreneurial paths often include missteps like underestimating needed startup capital, leading to early financial strain. Equally damaging is overpromising to investors—transparency is key to long-term partnerships. I have worked with executives who over promise to the board, creating stress for everyone.

Be wary in negotiations; excitement can overshadow critical terms in agreements. Scrutinize equity stakes and repayment terms to ensure they align with your startup’s goals and capabilities. Securing the right capital on favorable terms is crucial for success.

Wrapping It Up: Key Takeaways and Your Next Steps

Finding the right startup capital is vital, yet varies for each business. It’s about adaptability, resilience, and focus on your goal.

With a robust business plan and understanding of your financial needs, you’re set to turn dreams into realities. Keep in mind that 10 out of 11 startups fail.

Start laying your empire’s foundation brick by brick, refine your pitch, and embark on your entrepreneurial path with confidence.

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Federal judge temporarily halts biden plan to lower credit card late fees to $8.

LOS ANGELES (AP) — A federal judge in Texas temporarily halted a plan by the Biden administration to lower late fees on credit cards to $8 that was slated to go into effect next week.

The temporary nationwide injunction imposed by Judge Mark Pittman in the Northern District of Texas is a win for the big banks and major credit card companies, which collect billions in revenue each year in late fees and were looking to stop the proposal from going into effect. It is also a win for the U.S. Chamber of Commerce, which led the lawsuit on behalf of the banks.

The new regulations that were proposed by Consumer Financial Protection Bureau would have set a ceiling of $8 for most credit card late fees or require banks to show why they should charge more than $8 for such a fee.

The rule would bring the average credit card late fee down from $32. The bureau estimates banks bring in roughly $14 billion in credit card late fees a year.

White House spokesperson Jeremy Edwards said in a statement Friday night, “We are disappointed that a court sided with House Republicans, big banks and special interests to hit pause on a critical measure to save American families billions in junk fees.”

Banks had sued to stop the lawsuit earlier this year, but they had run into a roadblock when Pittman ordered the case moved to Washington, D.C., because of the fact that few banks operate in northern Texas. However, an appeals court reversed most of Pittman’s decision and ordered him to rule on the bank’s request for an injunction.

While Pittman did impose the injunction, he used a significant portion of his order to chastise the Fifth Circuit Court of Appeals for sending this case back to him after he had already ruled that the case should be handled out of Washington. Critics of the lawsuit have called the case the latest example of judicial “forum shopping,” where a company files a lawsuit in a friendly district in order to have a greater likelihood of getting a favorable ruling.

As part of his reelection campaign, President Joe Biden has tried to highlight his administration’s push to clamp down on what he calls “junk fees,” which are bank-related fees like late fees, ATM fees and overdraft fees.

“Every month that the credit card late fee rule is blocked will cost Americans over $800 million,” the White House said Friday.

Banks have seen the campaign as a political battle against their business model, while consumer advocates have seen these bank fees as excessive based on the amount of risk that banks and credit card companies are taking on.

“In their latest in a stack of lawsuits designed to pad record corporate profits at the expense of everyone else, the U.S. Chamber got its way for now — ensuring families get price-gouged a little longer with credit card late fees as high as $41,” said Liz Zelnick with Accountable.US.

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Capital One Spark 1% Classic for Business Review 2024

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate credit cards to write unbiased product reviews .

The information for the following product(s) has been collected independently by Business Insider: Capital One Spark 1% Classic†, Bank of America Business Advantage Unlimited Cash Rewards Secured Business Credit Card, FNBO Business Edition® Secured Mastercard® Credit Card, Capital One Spark Cash Select for Excellent Credit†. The details for these products have not been reviewed or provided by the issuer.

Introduction to the Capital One Spark 1% Classic

The Capital One Spark 1% Classic† credit card is designed for small business owners with fair credit who need a business credit card for company purchases, bookkeeping and tax preparation management.

Earn unlimited 5% cash back on hotels and rental cars booked through Capital One Travel. Earn unlimited 1% cash back on every purchase for your business with no limits or category restrictions.

30.49% Variable

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No annual fee
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Travel and purchase protection
• con icon Two crossed lines that form an 'X'. Some other business cards offer better rewards
• con icon Two crossed lines that form an 'X'. No welcome bonus

Whether you have a new business or just don't have a ton of credit history, the Capital One Spark 1% Classic could be a good stepping stone. It's possible to get approved for the card with just fair credit, whereas most other business cards that earn rewards require a good or even excellent credit score.

Capital One Spark 1% Classic Overview

The Capital One Spark 1% Classic† could be considered the entry level card in Capital One's line of small business cards, which are all branded with Spark name. The Capital One Spark 1% Classic† has no annual fee, but it offers many of the same benefits featured on other premium rewards cards for small business owners . 

This card is unique amongst business cards in that applicants don't need to have excellent or even good credit to be approved. In fact, the Capital One Spark 1% Classic† is the only Capital One small business card that's specifically marketed towards applicants with fair credit , which ranges from 580 to 669 on FICO scoring.

But as you might expect, this card has a higher standard interest rate compared to those meant for applicants with good or excellent credit . The Capital One Spark 1% Classic† has an interest rate of 30.49% Variable APR, which is a variable rate that rises and falls with the prime rate . With rates this high, we strongly recommend you avoid interest charges by paying your monthly statement balances in full.

Capital One Spark 1% Classic Rewards

The Capital One Spark 1% Classic† allows business owners to earn basic rewards on everyday spend — a rare feature on cards designed for applicants with low credit scores. 

Welcome Bonus 

Unlike competing business credit cards cards designed for those with excellent credit, the Capital One Spark 1% Classic† doesn't offer a new account bonus.

How to Earn Rewards With the Capital One Spark 1% Classic

The Capital One Spark 1% Classic† has a very simple rewards structure. You earn 1% cash back on all purchases, with no limits. And when you book hotels and rental cars through Capital One Travel, you can earn 5% cash back. 

How to Use Rewards With the Capital One Spark 1% Classic

Your cash back can be redeemed online and in any amount as a statement credit or as a check. You can also use your cash back to cover a recent purchase or to buy gift cards. 

Capital One Spark 1% Classic Benefits and Features

The Capital One Spark 1% Classic† comes with many tools designed to streamline business accounting and and expense management. 

Accounting and Business Management

This benefit offers an itemized report of your spending, which can help small business owners to simplify their budgeting, track expenses and prepare taxes.

The Capital One Spark 1% Classic† also lets you view a list of recurring transactions and cardholders can receive year-end summaries to simplify accounting and tax preparation. This card even integrates with popular business software such as Quickbooks, Concur Expense, Expensify, Xero and Abacus.

Employee Access

Capital One Spark 1% Classic† cardholders can request free additional cards for employee authorized users, and the primary account holder can set customized spending limits for each user. You can also assign an account manager with the access necessary to review transactions and resolve any problems.

Fraud Prevention

The Capital One Spark 1% Classic† comes with a host of services to protect your account including automatic fraud and security alerts. You also have the ability to create one-time-use virtual card numbers that allow you to make purchases without disclosing your account information. The Card Lock feature allows you to temporarily lock your card if you suspect it has been misplaced, lost or stolen.

Travel Insurance and Purchase Protection

The Capital One Spark 1% Classic† offers several valuable services to help you when traveling. Roadside assistance helps you during automotive emergencies, such as jump-starting, tire changing and towing.

Cardholders also receive access to Capital One Travel , which offers customized booking recommendations that helps you find the right time to purchase your flights for the lowest price. Finally, you also receive additional warranty coverage that adds a one year to the manufacturer's warranty of eligible purchases. 

Capital One Spark 1% Classic Annual Fee and Other Costs

There's no annual fee for this card, and no foreign transaction fees, as is the case for all Capital One credit cards. There is a late payment fee and a cash advance fee (see Capital One's website for details).

Compare the Capital One Spark 1% Classic

While the Capital One Spark 1% Classic† has its merits, small business owners with good to excellent credit have many cards available to them which often come with better benefits. Even if you have poor to fair credit, it's still worth comparing other options to ensure you find the financial tool that best suits your needs.

Here are some alternative options for you to consider. 

Bank of America Business Advantage Unlimited Cash Rewards Secured Business Credit Card vs. Capital One Spark 1% Classic

The Bank of America Business Advantage Unlimited Cash Rewards Secured Business Credit Card is one of our choices for the best business credit cards for bad credit , as it features the best everyday rewards in its category. 

This card earns 1.5% cash back on all purchases, which is 50% more than what the Capital One Spark 1% Classic† earns per dollar spent. It also doesn't come with an annual fee. 

While this secured card is available to applicants with nearly any credit history, cardholders must submit a $1,000 minimum security deposit to open an account. 

FNBO Business Edition® Secured Mastercard® Credit Card  vs. Capital One Spark 1% Classic

Another contender on our list of cards for businesses with low credit, the FNBO Business Edition® Secured Mastercard® Credit Card offers credit limits between $2,000 and $100,000, but requires a security deposit of 110% of the amount of your desired credit limit. However, your deposit will earn interest while it sits in your secured card account.

The card has a $39 annual fee, but doesn't earn any cash back or other rewards. 

Capital One Spark Cash Select for Excellent Credit vs. Capital One Spark 1% Classic

This Capital One card can be a more rewarding option for business owners with better credit. The Capital One Spark Cash Select for Excellent Credit† is nearly identical to the Capital One Spark 1% Classic†, but it earns 1.5% cash back on all purchases instead of the 1% you'll earn per dollar spent on the Spark Classic.

The Capital One Spark Cash Select for Excellent Credit† does not have an annual fee, and features an intro APR of N/A (then 18.49% - 24.49% Variable APR).

Capital One Spark 1% Classic Cardholder Insights

As part of our review of the Capital One Spark 1% Classic†, we reviewed the concerns of current and previous cardholders across a number of forums such as Reddit and FlyerTalk. Here are some trends you may want to know and consider before applying.

Approval Odds

Since the Capital One Spark 1% Classic† is designed to appeal to those with credit problems, it's not surprising that much of the comments about it relate to the chances of being approved. For example, Redditors frequently debate their odds of getting approved with various credit scores.

The best advice is to apply for the card that's designed for those with your credit score range.  There are reports of applicants being sent letters from Capital One requesting additional identifying information. 

Spark vs. Quicksilver

Many people online compared the Capital One Spark business cards to the consumer-targeted Capital One Quicksilver cards. It's easy to see why, as the terms of these cards are very similar, with the key points being unlimited cash back at a fixed rate, and no annual fee for several of each version.

However, the Spark cards are specifically intended for small business use, and come with a range of expense tracking and business management features that most consumers would be unlikely to use. 

Capital One Spark 1% Classic Frequently Asked Questions

The Capital One Spark 1% Classic† is designed for businesses with fair credit, and earns 1% cash back on all purchases. It doesn't have an annual fee or charge foreign transaction fees, and allows cardholders to add authorized users at no cost. 

The Capital One Spark 1% Classic† is ideal for small to medium-sized businesses with fair credit that are seeking to improve their credit score while earning rewards on every purchase. It's particularly beneficial for businesses that incur regular expenses which may not qualify for premium business cards that require higher credit scores.

By reporting to the major credit bureaus, the Capital One Spark 1% Classic† helps businesses build credit with responsible use. Timely payments and maintaining low balances can positively impact your business credit score, making it easier to qualify for more competitive financial products in the future.

Yes, the cash back earned with the Capital One Spark 1% Classic† can be applied as a statement credit to offset business expenses, or it can be redeemed for checks. This flexibility allows businesses to reinvest their rewards in a way that best suits their needs.

The Capital One Spark 1% Classic† provides several protections and benefits, including fraud coverage in case your card is lost or stolen, customizable spending limits on employee cards, and year-end summaries to simplify accounting and budgeting. Additionally, cardholders have access to Capital One's business resources and 24/7 customer service.

Why You Should Trust Us: How We Reviewed the Capital One Spark 1% Classic

Business Insider's credit cards team reviewed the Capital One Spark 1% Classic† by comparing it to similar small business credit cards. We looked at several factors in our assessment, including:

• Credit requirements — Who is this card available to? What credit score is required?
• Cash back rewards —  What are the cash back rewards of this card? How do they work? Are they capped?
• Costs — What are the costs of this card, in terms of fees? What is the standard interest rate?
• Benefits — What cardholder perks and benefits can you expect from this card? How does it meet the needs of its intended users?

Editorial Note: Any opinions, analyses, reviews, or recommendations expressed in this article are the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any card issuer. Read our editorial standards .

Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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Blackstone LaunchPad Student Start-Ups Place in the Finals of the 2024 New York Business Plan Competition

Two Syracuse University Libraries’ Blackstone LaunchPad (LaunchPad) student start-up teams placed in the finals of the New York Business Plan Competition (NYBPC) , powered by Upstate Capital, held in Albany on April 25.

Motolani Oladitan ’24 (College of Arts and Sciences), left, founder of Tá Beautie, and Natasha Brao ’22 (College of Visual and Performing Arts) G’23, G’24 (Whitman School of Management), founder of Shooka Sauce.

Natasha Brao ’22, (College of Visual and Performing Arts) G’23, G’24 (Whitman School of Management), founder of Shooka Sauce, won the 3 rd place prize of $1,000 in the food and agriculture track. Shooka Sauce is a Mediterranean-spiced tomato sauce based on the dish Shakshuka, inspired by mixing and melding cultural flavors to promote creative cooking.

Motolani Oladitan ’24 (College of Arts and Sciences), founder of Tá Beautie, was awarded the Concept Stage Award of $500 in the software and services track. Tá Beautie is a virtual marketplace connecting African beauty and wellness brands with the diaspora, making it easier for consumers to discover and purchase high-quality, authentic African products.

Five Launchpad student start-up teams attended the 2024 New York Business Plan Competition. Other student teams to reach the finals include Frank Marin ’24 (Marhold Space Systems), Adya Parida ’25 (Scale Sense), and Dylan Bardsley ’26 and Mark Leaf ’27 (Clarity).

The NYBPC attracts some of New York state’s best student entrepreneurs. The competition promotes entrepreneurial opportunities for college students from across the state to pitch their business plans to seasoned investors. They also receive the opportunity to engage with mentors and judges from the business community. The finals event connects students with business professionals, provides experiential learning opportunities through competitions, connects entrepreneurs with resources at the Entrepreneurship Expo and awards up to $100,000 in cash prizes to help seed new ventures.

Cristina Hatem

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What Is Capital Investment?

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Capital Investments for Business

• Advantages and Disadvantages

Accounting for Capital Investments

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Capital Investment: Types, Example, and How It Works

Capital investment is the acquisition of physical assets by a company for use in furthering its long-term business goals and objectives. Real estate, manufacturing plants, and machinery are among the assets that are purchased as capital investments.

The capital used may come from a wide range of sources from traditional bank loans to venture capital deals.

Key Takeaways

• Capital investment is the expenditure of money to fund a company's long-term growth.
• The term often refers to a company's acquisition of permanent fixed assets such as real estate and equipment.
• Capital assets are reported as non-current assets and most are depreciated.
• The funds for capital investment can come from a number of sources, including cash on hand, though big projects are most often financed through obtaining loans or issuing stock.
• Examples of capital investments are land, buildings, machinery, equipment, or software.

Investopedia / Theresa Chiechi

How Capital Investment Works

Capital investment is a broad term that can be defined in two distinct ways:

• An individual, a venture capital group or a financial institution may make a capital investment in a business. The money can be provided as a loan or a share of the profits down the road. In this sense of the word, capital means cash.
• The executives of a company may make a capital investment in the business. They buy long-term assets such as equipment that will help the company run more efficiently or grow faster. In this sense, capital means physical assets.

In either case, the money for capital investment must come from somewhere. A new company might seek capital investment from any number of sources, including venture capital firms, angel investors , or traditional financial institutions. When a new company goes public, it is acquiring capital investment on a large scale from many investors.

An established company might make a capital investment using its own cash reserves or seek a loan from a bank. It might issue bonds or stock shares in order to finance capital investment. There is no minimum or maximum capital investment. It can range from less than $100,000 in seed financing for a start-up to hundreds of millions of dollars for massive projects undertaken by companies in capital-intensive sectors such as mining, utilities, and infrastructure.

Capital investment is meant to benefit a company in the long run, but it nonetheless can have short-term downsides.

A decision by a business to make a capital investment is a long-term growth strategy. A company plans and implements capital investments in order to ensure future growth. Capital investments generally are made to increase operational capacity, capture a larger share of the market, and generate more revenue. The company may make a capital investment in the form of an equity stake in another company's complementary operations for the same purposes.

In many cases, capital investments are a necessary and normal part of an industry. Consider an oil-drilling company that relies on heavy machinery to extract raw materials to be processed. As opposed to a law firm that will have low-to-no capital investment requirements, capital-intensive businesses usually need specific assets in order to operate.

In addition, there are strategic components for a business to consider when deciding whether or not to invest in a capital asset. For instance, consider how certain heavy machinery such as a company vehicle could be leased. Should the company be willing to incur debt and tie up capital, the company may spend less money in the long-term by incurring a capital investment as opposed to a periodic "rental" expense.

Types of Capital Investments

Companies often acquire capital investments for diversification, modernization, or business expansion. This may mean buying capital investments different from existing aspects of its business or capital investments that simply do things better than before. Some specific types of capital investments include:

• Land: Companies may buy bare land to be used for development or expansion.
• Buildings: Companies may buy existing buildings for manufacturing, storage, production, or headquarter operations.
• Assets Under Development: Companies may incur spending over time to assemble assets that may be capitalized. For example, a company can build its own building; the accumulation of charges may be considered a capital investment.
• Furniture and Fixtures: Though furniture and fixtures may be more temporary in nature, certain aspects of accounting rules result in some overlap between FFE and capital investments.
• Machines: Companies that invest in the production elements of making goods are making capital investments.
• Software Development or Computing Devices: Companies more frequently invest capital to build software; these costs now commonly qualify for capitalization and amortization over time.

Because land does not deteriorate in a similar manner compared to other capital investments, it is not depreciated.

Advantages and Disadvantages of Capital Investments

Pros of capital investments.

The advantages of capital investments can vary depending on the specific situation. However, most companies embark on capital investments for productivity.  By investing in new equipment or technology, companies can improve their efficiency, thus lower costs and increasing output. These types of investments may also improve the quality of goods produced.

Capital investments can also lead to cost savings over time. For example, a new piece of equipment may be more energy-efficient than an older model, which can result in lower utility bills. Similarly, new technology may streamline processes and reduce the need for manual labor. Last, companies may decide the long-term discounted cash flow is favorable when comparing the upfront investment of a capital investment compared to the long-term, ongoing cash outlay of a recurring expense.

By investing in their long-term assets, companies can also gain a competitive advantage in the market. This can make it more difficult for competitors to catch up and can help the company to maintain its market position over the long term. If a company is willing to take a risk and incur a large investment to strengthen its business, this may create a barrier to entry that competitors can not overcome or compete against.

Cons of Capital Investment

The preferred option for capital investment is always a company's own operating cash flow, but that may not be sufficient to cover the anticipated costs. It is more likely the company will resort to outside financing. Therefore, there is usually a little more risk to capital investments. This is especially true for capital investments that are customized or hard to liquidate; once the company has bought the capital investment, it may be hard to exit the investment.

Capital investment is meant to benefit a company in the long run, but it nonetheless can have short-term downsides. Capital investments tends to reduce earnings growth in the short term, and that never pleases stockholders of a public company. This may be especially true for capital investments that also incur operating costs (i.e. the acquisition of land will be accompanied by a potentially hefty annual property tax assessment).

In addition, if a company does not have sufficient capital on hand to make a large investment, there are downsides to each of its financing options. Issuing additional stock shares, which is often the funding option for public companies, dilutes the value of its outstanding shares. Existing shareholders generally dislike finding that their stake in the company has been reduced. Alternatively, the total amount of debt a company has on the books is closely watched by stockholders and analysts . The payments on that debt can stifle the company's further growth.

May increase productivity if capital investment is more efficient than prior methods

May result in higher quality manufactured goods

May be cheaper in the long-run when compared against rented or monthly expensed solutions

May create a barrier to entry that yields a competitive advantage

May be too expensive for the company to outright purchase on their own.

May limit or restrict short-term profitability of the company

May be accompanied by additional operating expenses

May reduce the liquidity of the company should it be difficult to sell the capital asset

Accounting practices for capital investments involve recording the cost of the asset, allocating the cost over its useful life, and carrying the investment as the difference between cost and accumulated depreciation . The accounting treatment can vary depending on the type of asset, as land is not depreciated but many other capital investments are depreciated.

The cost of the asset should be recorded in the company's accounting records. This can include the purchase price of the asset as well as any additional costs related to the purchase such as installation or transportation costs. Companies may record the fair market value for certain capital investments under certain circumstances, but capital investments must initially be recorded at cost.

If the asset has a cost that meets the company's capitalization policy, the cost of the asset will be recorded as a capital asset on the balance sheet. This allows the company to spread the cost of the asset over its useful life and to recognize the expense over time. This is the primary difference between the assets mentioned earlier and normal operating costs, as operating costs are expensed in the period they are incurred while capital investment costs are spread over time.

The useful life of a capital investment is an estimate of the number of years that the asset will be used by the company. The depreciation method used will depend on the asset and the company's accounting policies, but commonly used methods include straight-line, declining balance, and sum-of-the-years'-digits. Companies may also record impairments to reduce the value of a capital investment should a loss be incurred. In addition, whereas operating expenses may simply be stopped, companies have a series of entries to post when a capital investment is disposed of.

Example of Capital Investment

As part of its year-end financial statements, Amazon.com reported the following assets it owned for fiscal year 2021 and 2022.

This format of the balance sheet is standard where assets are reported by liquidity starting with the most liquid assets. Because capital investments are not liquid, they are often reported lower in the list.

At year-end 2022, Amazon reported a net asset balance of $186.7 billion for property and equipment. This figure is net because capital investments, aside from land, are often depreciated and reported as their cost less any accumulated depreciation. Note that this $186.7 billion is also being excluded from current assets. Because of the long-term nature of capital investments, they are reported as noncurrent assets.

What Is an Example of a Capital Investment?

When a company buys land, that is often a capital investment. Because of the long-term nature of buying land and the illiquidity of the asset, a company usually needs to raise a lot of capital to buy the asset.

How Does a Capital Investment Work?

A capital investment works based on the benefits a company may receive over a long period of time compared to the short-term investment. In theory, a company will pay a large sum of money upfront (or over time). Then, the company will receive a benefit from the asset (potentially even after it has finished paying for it). The idea is a capital investment should provide better long-term value compared to a good or service that is being purchased and used in a single accounting period.

What Is the Largest Downside to a Capital Investment?

Companies must often make a long-term financial or legal commitment when buying capital investments. This means tying up cash, getting rid of flexibility, and taking a risk that may not pan out. Whereas a company can be more nimble by paying for something smaller, a company aims to leverage a single investment to scale growth or innovate. That growth or innovation may not materialize.

Companies may decide to make capital investments as a way to innovate, modernize, and capture a competitive advantage over its competitors. This investment often requires a large sum of money, and the company often receives an illiquid asset such as land, buildings, machinery, or equipment. The accounting treatment for capital investments if often different than operating outlays as capital investments are usually depreciated.

Amazon. " Form 10-K (2022) ."

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Carbon capture plan faces doubts after Capital Power cancels $2.4-billion project

Edmonton-based Capital Power Corp. says it is no longer pursuing a proposed $2.4-billion carbon capture and storage project at its Genesee natural gas-fired power plant. Jimmy Jeong/The Canadian Press

Capital Power Corp. CPX-T has scrapped plans for one of Canada’s largest carbon-capture projects, dealing a blow to the country’s efforts to reduce emissions from industries that produce or heavily use fossil fuels.

The Edmonton-based power generator announced in its quarterly earnings report on Wednesday that it is discontinuing pursuit of the $2.4-billion project because it does not work financially. It had previously said that the proposal would annually capture up to 3 million tonnes of emissions from natural-gas units at its Genesee generating station in Alberta.

“Through our development of the project, we have confirmed that CCS [carbon capture and storage] is a technically viable technology,” Capital Power said in its statement. “However, at this time, the project is not economically feasible.”

The decision relates at least in part to continuing tensions between industry and the federal government about the extent to which public dollars will be used to provide revenue certainty for this form of decarbonization. And it raises questions about the future of carbon-capture investments being considered by other heavy emitters.

That uncertainty has major implications for Canada’s ability to hit its national climate-change goals, including net-zero greenhouse-gas emissions by 2050. Industry and Ottawa have pinned hopes for meeting those targets, without eliminating fossil-fuel sectors entirely, on being able to use the technology to catch carbon at sites from which it otherwise enters the atmosphere, then either bury it underground or use it in other industrial processes.

Although Capital Power declined an interview request on Wednesday, senior vice-president Jason Comandante earlier this year told The Globe and Mail that the company was considering parking the project because it was disappointed by the pace of negotiations with the Canada Growth Fund. The CGF is the new federal agency that has the task of offering revenue-certainty tools broadly known as carbon contracts for differences (CCfDs).

Canada Growth Fund to invest $50-million in Montreal’s Idealist Capital

Ottawa has already committed to significant financial backing for carbon-capture projects, by covering up to 50 per cent of capital costs through a new investment tax credit, although there has been industry frustration with slowness in putting that measure into law. And Alberta’s provincial government has committed to grants covering an additional 12 per cent of the upfront investments.

But Capital Power and other carbon-capture proponents have argued that additional financial assurances are needed from government, because CCS facilities will have high operational costs, and otherwise lack a reliable revenue stream.

While those revenues could come from earning and then selling credits under Canada’s industrial carbon-pricing system, industry has cited uncertainty about whether a robust credit-trading market will take shape – and about whether the pricing system will survive changes in government – as impediments to investment.

CCfDs are meant to address that concern by effectively creating a floor price for the credits’ value, with government taking on the risk if credits don’t trade for that amount.

The first such deal – a carbon-credit offtake agreement between the CGF and Entropy Inc., a carbon-capture subsidiary of Advantage Energy Ltd. AAV-T – was reached last December, to back a smaller project in Alberta.

But that deal set a relatively low per-tonne price of $86.50. That’s well below the guaranteed price that other companies have been seeking for their carbon-capture plans, according to three sources familiar with the CGF’s negotiations. The Globe is not identifying the sources because they were not authorized to speak publicly about the talks.

Other factors, beyond the apparent CCfD impasse, may also have played into Capital Power’s decision that its project was not financially workable.

Those include additional revenue volatility related to a restructuring of Alberta’s electricity market being undertaken by the province’s government, as well as the impact of interest rates higher than when the project was first conceptualized in 2021. The company’s leadership has also changed since that time, with Avik Dey replacing Brian Vaasjo as chief executive officer in 2023.

And while Capital Power has walked away from the table, other heavy emitters are known to still be in active negotiations with the Growth Fund. That includes Heidelberg Materials HDELY , a German company hoping to build the world’s first cement plant with full-scale carbon capture in Edmonton.

Nevertheless, carbon-capture advocates seized on Wednesday’s news as evidence of governments having failed to give emitters enough confidence that projects will pay off.

“These projects can still work,” said Michael Bernstein, the executive director of the think-tank Clean Prosperity, which has led the public push for CCfDs. “But the policy environment is not yet where it needs to be, including on contracts for difference, to put in place a strong signal to emitters that there is going to be a strong financial case for moving ahead.”

Mr. Bernstein suggested that sending that signal involves quickly reaching deals with other companies, now that Capital Power has retreated, but he also continued to call for a broader CCfD program to be put in place. To date, Ottawa has indicated that the Growth Fund can invest up to $7-billion in such deals, which may not be enough to meet the demand for them, and has prompted speculation that the agency is driving hard bargains to stay within its means.

Last month’s federal budget hinted at addressing that concern, including by stating that the government is “evaluating options to enhance the Canada Growth Fund’s capacity to offer CCFDs.”

As of now, however, the Growth Fund has committed under $1-billion, through the lone deal with Entropy.

While some environmental groups expressed dismay about the loss of another, larger potential carbon-capture deal, others cited it as evidence that the technology is an impractical way of addressing pollution, and that governments’ focus should be on replacing fossil fuels rather than abating their emissions.

“Carbon capture is unnecessary, ineffective and expensive,” Environmental Defence Canada said in a statement. “The most effective way to deal with carbon-dioxide emissions is to prevent them from ever being created.”

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